3Q17 Earnings Release

Transcription

1 3Q17 Earnings Release Barueri, November 06, 2017 Smiles Fidelidade S.A. (B3: SMLS3) one of the largest loyalty programs in Brazil with over 12 million members, announces today its 3Q17 results. The financial and operational information in this report refers to the consolidated results of Smiles S.A. and is presented in accordance with IFRS and in Brazilian reais (R$), except when indicated otherwise. Percentage variations may use more decimal places for the calculations than shown in the document and are in comparison with Smiles S.A. numbers. Smiles Fidelidade S.A. Net Income increased 132.1% reaching R$ in 3Q17 B3: SMLE3 Novo Mercado Price: R$ No. of shares: 123,856,953 Market value: R$ 10.0 bn (close: 11/03/2017) 3Q17 Conference Call November 07, 2017 In Portuguese and English: (Simultaneous Translation) 10:00 a.m. (Brasília) 09:00 a.m. (US EST) Phone: +55 (11) or +1 (646) Password: Smiles webcast (Portuguese) webcast (English) SMILES CONTACTS Leonel Andrade CEO Marcos Pinheiro CFO Ivan Bonfanti Financial Planning, MIS & Investor Relations Manager Vinicius Bioni Investor Relations HIGHLIGHTS 3Q17 Miles Accrual was up 65.0% when compared to 3Q16 and 11.6% in comparison to 2Q17, totalizing the record of 22.8 billion of miles. 3Q17 Gross Billings was up 16.2% when compared to 3Q16 and 7.7% in comparison to 2Q17, reaching the record of R$ million. 3Q17 Miles Redemption increased 55.9% versus 3Q16 and 4.8% in comparison to 2Q17, totalizing the record of R$ 17.1 billion of miles 3Q17 Net Revenue increased 10.7% compared to 3Q16, reaching R$ million. Main Highlights Unit 3Q17 2Q17 3Q16 Miles accrual bln % 65.0% Gol bln % 52.4% Banks, retail and others bln % 40.7% Smiles & Money bln % - Smiles' program redemptions ² bln % 55.9% Total gross billings ³ R$ mn % 16.2% Total gross billings (ex-gol) ³ R$ mn % 16.6% Net revenues R$ mn (0.2%) 10.7% EBITDA 1 R$ mn (5.2%) (1.7%) EBITIDA margin 1 % 37.0% 38.9% 41.6% (2.0 p.p.) (4.7 p.p.) Net income R$ mn % 134.6% net margin % 77.0% 33.1% 36.3% 43.9 p.p p.p. ri@smiles.com.br 1. EBITDA is not an accounting measurement elaborated by the Company, reconciled with its financial statements. The EBITDA is composed by net income attributable to the Company s shareholders, added by net financial result, income tax and social contribution, and expenses related to depreciation and amortization. 2. Corresponds to miles redeemed in the program (new miles and legacy miles). 3. Gross Billings is not an accounting measurement and corresponds to total sales revenues for miles and the cash portion of Smiles & Money, gross of taxes. These billings may have affected the current period or will be recognized as revenue in future periods, depending on the date of redemption by the program members.

2 Message from Management In the third quarter of 2017, Smiles continues to show positive developments in operational and financial indicators. Among the operating indicators, we highlight the 65.0% increase in the number of miles accrued, and the 55.9% increase in the volume of miles redeemed, comparing both indicators with the third quarter of This result reflects once again our consistent path of engaging our customers and consolidating our leading position in the loyalty industry in Brazil. Another highlight of this quarter is the total gross billings that exceeded R$ 500 million, representing a 16.2% growth in comparison to 3Q16, which was the third consecutive quarter in 2017, whose revenues grew in relation of the same periods of the previous year. In this quarter, we concluded the merger of Smiles S.A. by Smiles Fidelidade S.A. and its shares are trading at B3 under the SMLS3 code since 10/23/2017. It should be noted that this operation generated significant gains that contributed to the achievement of the historical mark of R$ of net income in 3Q17. Redeeming hotels and cars through the App. Reinforcing our commitment to offer the best and easiest travel experience of the loyalty industry in Brazil, we updated our app and from September 30, 2017 our customers can, in addition to continuing to issue their flight tickets, book hotels and cars through the mobile platform. Smiles was considered the best company in the loyalty sector, and ranked 20 th in the overall ranking in the 3 rd edition of Mobility Index. The 235 most valuable brands on the market were evaluated. New Shopping Smiles. Keeping the tradition of innovation in the loyalty sector this quarter was marked by our new e- commerce platform launch. We now offer a complete marketplace with an unique and user-friendly experience for our customers while offering unrivaled mileage rewards to our users. We see this initiative as an essential step in expanding a virtuous cycle of loyalty where we are increasingly stimulating the credit cards spending and the recurring behavior of our customers while creating value for our partners, our shareholders and for our users. Shell automatic redemption. Smiles took another step in evolving its partnership with Shell, in addition to miles collection for buying fuel, now it is also possible to pay products and services offered by Shell with miles directly on the credit card machines. Partnership with Wine.com.br. All customers who join the "Classic ClubW" through the Smiles platform will receive both membership and monthly miles during the subscription period. They also will be entitled to exclusive discounts on the Wine.com website. In this quarter our family grew and reached the mark of 123 smiling and enthusiastic employees. We remain optimistic about loyalty opportunities and reaffirm our commitment to consolidate Smiles as Brazil's most innovative business platform and a complete travel company. Our mission is to turn miles into smile :) 2

3 Operating Performance Operating data 1 Unit 3Q17 2Q17 3Q16 Members mn % 8.3% Miles accrual mn % 65.0% Gol mn % 52.4% Banks, retail and services mn % 40.7% Smiles & Money mn % - Smiles' redemption program mn % 55.9% Airline redemptions mn % 58.6% Non-airline redemptions mn % 31.3% Breakage rate % 18.0% 17.8% 16.3% 0.2 p.p. 1.7 p.p. 1 All relevant miles amounts are net of reimbursement. The data in this table do not reflect financial information. Members: The program reached 12.8 million customers in 3Q17, 8.3% up on 3Q16. Miles accrual: The program s miles accrual increased by 65.0% in 3Q17 over 3Q16, boosted by the 40.7% increase in banks, retail and services accrual and the new dynamic of miles accrual from Gol that the customer who flight with Gol accrue more miles per real spent. The miles accrued from Gol was 52.4% higher than 3Q16 Miles redemption: The redemption of miles from the program in 3Q17 was 55.9% higher than 3Q16, reaching 17.1 billion miles in the period. The burn/earn ratio was 75.2% in 3Q17 and decreased 4.8 bps in comparison to 2Q17. 3

4 Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Gpç + Intl Partners Redemption Other Products Redemption The Company continues to show sustainable growth in the volume of miles redeemed which were 55.9% this quarter, partially influenced by the new dynamic of Smiles & Money. Operating data 1 Unit 3Q17 2Q17 3Q16 Smiles' redemption program mn 17,147 16,353 11, % 55.9% Gol + International Partners Tickets mn 15,728 14,955 9, % 58.6% Non-airline mn 1,419 1,398 1, % 31.3% % of miles redeemed Gol + International Partners Tickets % 91.7% 91.5% 90.2% 0.3 p.p. 1.5 p.p. Non-airline % 8.3% 8.5% 9.8% (0.3 p.p.) (1.5 p.p.) 1 All values corresponding to miles are net of reimbursement. Segregation among different redemption types were not reviewed by auditors. Breakage: The breakage rate in the last twelve months increased by 0.2 p.p. over 2Q17, reaching 18.0%. 4

5 Financial Performance Financial information summary Unit 3Q17 2Q17 3Q16 Gross billings 1 R$ mn % 16.2% Gol R$ mn % 10.9% ex-gol R$ mn % 16.6% 1. Gross Billings is not an accounting measurement and corresponds to total billings from the sale of miles gross of taxes. These revenues may have affected the current period or will be recognized as revenue in future periods, depending on the date of redemption by the program members. Gross billings: Total gross billings climbed by 16.2% over 3Q16, essentially due to the 16.6% increase in ex-gol miles billings. Revenues (R$ thousands) 3Q17 2Q17 3Q16 Gross redemption revenues 486, , ,790 (0.1%) 10.9% Miles redemption revenue 423, , , % 13.6% Breakage revenue 57,937 61,984 60,617 (6.5%) (4.4%) Other revenues 5,284 13,865 5,283 (61.9%) 0.0% Taxes and contributions (45,925) (45,347) (40,534) 1.3% 13.3% Net revenues 440, , ,256 (0.2%) 10.7% Redemption revenue: Gross revenues from miles redemption increased by 10.9% over 3Q16, driven by the increases of 13.6% in revenues from miles redeemed. Breakage revenue: breakage revenue reached R$ 57.9 million, 4.4% lower than 3Q16, mainly driven by the higher number of miles effectively expired. Other revenues: Other revenues decreased by 61.9% In comparison with 2Q17, reaching R$ 5.3 million. This item is mainly composed of cancellation fee, incentives to sell co-branded credit card and Gol s loyalty program s management fees. It is worth noting that revenue from the cancellation of Gol tickets is not being recognized on other revenues since this quarter. This effect does not change the profitability of the company, considering that this mentioned revenue was absolutely reflected in the cost until 2Q17. 5

6 Direct redemption margin: For the calculation of the redemptions margin, only the revenues and costs directly related to redemptions are considered, as calculated in the chart below: Redemption P&L 3Q17 2Q17 3Q16 Gross redemption revenue 425, , , % 14.1% (-) Direct Taxes (39,352) (38,952) (34,492) 1.0% 14.1% (=) Net redemption revenue (a) 386, , , % 14.1% (-) Cost of products purchase (223,332) (224,143) (182,431) (0.4%) 22.4% (=) Redemption result (b) 162, , , % 4.3% % Direct redemption margin 42.2% 41.3% 46.1% 0.8 p.p. (3.9 p.p.) Other revenues (c) 54,719 59,566 59,858 (8.1%) (8.6%) Breakage revenues 57,937 61,984 60,617 (6.5%) (4.4%) Other revenues 3,355 3,977 5,283 (15.6%) (36.5%) (-) Direct taxes (6,573) (6,395) (6,042) 2.8% 8.8% (-) Other costs (12,346) (11,448) (10,297) 7.8% 19.9% (=) Non redemption results (d) 42,373 48,118 49,561 (11.9%) (14.5%) Gross profit [e = b + d] 205, , ,528 (0.5%) (0.2%) % Gross margin [e / (a + c)] 46.5% 46.7% 51.6% (0.1 p.p.) (5.1 p.p.) 1. Gross Redemption Revenue considers others revenues related to redemption which are accounted on Others Revenues. Operating expenses (R$ thousand) 3Q17 2Q17 3Q16 Operating expenses (45,500) (37,501) (42,924) 21.3% 6.0% Commercial expenses (24,562) (22,055) (20,220) 11.4% 21.5% Administrative expenses (20,938) (15,446) (19,518) 35.6% 7.3% Other expenses/revenues - - (1,368) n/a n/a Operating expenses: operating expenses increased by 6.0% when compared to 3Q16, mainly related to (i) the increase of R$ 2.8 million in personnel expenses (consolidated between commercial and administrative expenses), mainly associated to the higher number of employees, (ii) an increase in commercial expenses of R$ 3.3 million, mainly due to expenses associated with credit card processing, and (iii) R$ 0.7 million increases in expenses with IT services, booked in administrative expenses. Operating profit: Smiles recorded operating profit of R$ million, 1.8% lower than 3Q16, representing an operating margin of 36.8%. 6

7 Other information (R$ thousand) 3Q17 2Q17 3Q16 Equity method investment - - (1,818) - - Net financial result 52,367 44,311 50, % 4.7% Financial expenses (210) (238) (33) (11.8%) 536.4% Financial income 49,628 47,975 54, % (9.4%) Net exchange variation 2,949 (3,426) (4,727) (186.1%) (162.4%) Income tax and social Contribution 127,513 (66,696) (67,895) (291.2%) (287.8%) Financial result: the financial result increased by 4.7% over 3Q16, chiefly due to the positive exchange variation. Net exchange variation: The net exchange variation recorded in the period is chiefly explained by the variation in the foreign exchange rate of accounts payable outstanding in USD, related to the cost of international ticket redemptions. Income tax and social contribution: this quarter there was the effect of the merger of Smiles S.A. by Webjet Participações, which resulted in a tax benefit to Smiles Fidelidade S.A. of R$ 193 million. Considering the aforementioned effect, the "Income tax and CSLL" was positive at R$ million in 3Q17. Net income: Smiles third-quarter net income totaled R$ million, accompanied with a net margin of 77.0%, 40.7 p.p. higher than in 3Q16. 7

8 Income Statement Income statement (R$ thousand) 3Q17 2Q17 3Q16 Gross redemption revenues 486, , ,790 (0.1%) 10.9% Miles redemption revenue 423, , , % 13.6% Breakage revenue 57,937 61,984 60,617 (6.5%) (4.4%) Other revenues 5,284 13,865 5,283 (61.9%) 0.0% Taxes and contributions (45,925) (45,347) (40,534) 1.3% 13.3% Net revenues 440, , ,256 (0.2%) 10.7% Reward redemption cost (235,678) (235,591) (192,728) 0.0% 22.3% Costs with airline ticket purchase (a) (197,115) (199,550) (168,525) (1.2%) 17.0% Costs with other product and services purchases (26,217) (24,593) (13,906) 6.6% 88.5% (-) Other cost (12,346) (11,448) (10,297) 7.8% 19.9% Gross profit 205, , ,528 (0.5%) (0.2%) gross margin 46.5% 46.7% 51.6% (0.1 p.p.) (5.1 p.p.) Operating expenses (45,500) (37,501) (42,924) 21.3% 6.0% Selling expenses (24,562) (22,055) (20,220) 11.4% 21.5% Administrative expenses (20,938) (15,446) (19,518) 35.6% 7.3% Other expenses/revenues - - (1,368) - (100.0%) Equity method investment - - (1,818) - (100.0%) Operating profit 159, , ,604 (5.3%) 1.8%) operating margin 36.8% 38.2% 49.8% (2.0 p.p.) (4.6 p.p.) Financial income 52,367 44,311 50, % 4.7% Financial revenues 49,628 47,975 54, % (9.4%) Financial expenses (210) (238) (33) (11.8%) 536.4% Exchange variation, net 2,949 (3,426) (4,727) (186.1%) (162.4%) EBT 211, , ,619 (0.4%) (0.3%) Income and social contribution taxes 127,513 (66,696) (67,895) (291.2%) (287.8%) Net income 339, , , % 134.6% Net margin 77.0% 33.1% 36.3% 43.9 p.p p.p. 8

9 Balance Sheet Balance Sheet (R$ thousand) 3Q17 2Q17 3Q16 Assets 2,098,198 1,774,926 1,878, % 11.7% Current 1,618, ,471 1,174, % 37.8% Cash and cash equivalents 203,675 71, , % 10.5% Short-term investments 173,881 50, , % (14.9%) Trade receivable 343, , , % 85.0% Advances to suppliers 884, , , % 60.6% Credits with related parties ,342 n/a 100.0% Other credits and values 13,189 9,976 4, % 217.8% Noncurrent assets 479, , ,817 (39.8%) (31.9%) Deferred taxes 238,188 67,533 68, % 247.7% Advances to suppliers 180, , ,337 (73.2%) (68.8%) Judicial deposits and blocked escrows 15, n/a n/a Investments 15,184 15,184 12, % 22.9% Property, plant and equipment 1,855 1,947 1,783 (4.7%) 4.0% Intangible assets 29,026 31,662 37,687 (8.3%) (23.0%) Other credits and values - 7,744 7,160 (100.0%) (100.0%) Liabilities 2,098,198 1,774,926 1,878, % 11.7% Current 1,039,886 1,071,186 1,041,934 (2.9%) (0.2%) Suppliers 144, , , % 40.2% Salaries 15,525 10,635 11, % 31.9% Interest on equity payable 7,847 12,582 16,053 (37.6%) (51.1%) Tax obligations 19,506 34,590 29,639 (43.6%) (34.2%) Obligations to related companies 24, n/a n/a Advances from customers 52,845 77,223 78,323 (31.6%) (32.5%) Deferred revenues 773, , , % (3.7%) Obligations with affiliates - 17, n/a Other liabilities 2,399 5,154 - (53.5%) n/a Noncurrent liabilities 204, , , % (15.9%) Suppliers 1,061 1,876 9,954 (43.4%) (89.3%) Provision for legal proceedings 14,034 1,357 1, % 995.6% Deferred revenue 189, , , % (18.3%) Shareholder s equity 853, , , % 43.9% Capital stock 43, , ,641 (76.8%) (76.3%) Capital to be subscribed n/a n/a Cost of issue shares (1,344) (36,402) (36,402) (96.3%) (96.3%) Capital reserve 481,628 43,765 43,765 n/a n/a Profit reserves - 36,364 29,233 - (100.0%) Additional dividend proposed n/a n/a Share-based payments 86 7,526 7,349 (98.9%) (98.8%) Retained earnings 330, , , % (10.2%) 9

10 Statement of cash flows Statement of Cash Flows (R$ thousand) 3Q17 2Q17 3Q16 Net Income 339, , , % 134.6% Share-based payments % (64.8%) Deferred income and social contribution taxes (170,655) (2,143) 3,226 n/a n/a Provision for legal proceedings 5, % (916.0%) Depreciation and amortization 3,371 3,355 3, % (6.2%) Discounts in advance ticket purchases (46,703) (45,927) (40,338) 1.7% (15.8%) Financial restatement of income and social contribution taxes (160) - - n/a n/a Exchange variations, net 894 (1,147) 2,668 (177.9%) (66.5%) Interest and amortization of costs on loans n/a n/a Allowance for doubtful accounts % (92.5%) Profit sharing 4,488 2,855 3, % 26.9% Sale of fixed asset n/a n/a Equity method investment - - 1,818 n/a (100.0%) Change in equity interest in associate - - 1,368 n/a (100.0%) Trade receivables (56,441) (20,116) (24,877) 180.6% % Advances to suppliers 214,778 (73,654) (5,700) (391.60%) n/a Recoverable taxes n/a n/a Judicial deposits and blocked escrows (605) - - n/a n/a Other credits / obligations (6,078) (3,992) (1,008) 52.3% 503.0% Credits with related companies (3,562) 1,811 (18,038) (296.7%) (80.3%) Suppliers (1,832) 16,763 (11,134) (110.9%) (83.5%) Labor obligations (49.2%) (34.5%) Advances from customers (25,063) (40,394) (70,135) (38.0%) (64.3%) Deferred revenue 17,123 (3,765) (5,642) (554.8%) (403.5%) Tax obligations 17,598 67,064 61,721 (73.8%) (71.5%) Lawsuits and labor claims (3,889) (472) (667) 723.9% 483.1% Interest paid (1) - - n/a n/a Income and social contribution taxes paid (18,984) (73,679) (61,074) (74.2%) % Net cash flows from (used in) operating activities 270,041 (25,998) (15,106) n/a n/a Acquisition of property, plant and equipment and intangible (644) (449) (2,281) 43.4% (71.8%) assets Short-term investments (123,813) 58,030 (22,953) (313.4% 439.4% Capital Increase in Affiliate - - (3,439) n/a (100.0%) Webjet S.A. s absorbed cash n/a n/a Net cash flows used in investing activities (124,218) 57,581 (28,673) (315.7%) 333.2% Capital Increase n/a (100.00%) Cost of issued shares (1,344) - - n/a n/a Interest on equity paid, net of taxes (12,582) - - n/a n/a Net cash flows from (used in) financing activities (13,926) n/a n/a Effect of exchange variation on cash and cash equivalents 72 (340) - (121.2%) n/a Net increase (decrease) in cash and cash equivalents 131,969 31,243 (43,642) 322.4% (402.4%) Cash and cash equivalents at the beginning of the period 71,706 40, , % (68.5%) Cash and cash equivalents at the end of the period 203,675 71, , % 10.5% 10

11 Business Model Smiles started as a single loyalty program, but has evolved into its current coalition model, which features several unique characteristics that allow for the accrual and redemption of Miles from GOL flights and its international partner airlines, as well as Brazil's main commercial banks, including co-branded cards issued by Bradesco and Banco do Brasil, and a wide network of retail partners. The current model works through (i) the accrual of Miles by Members when they purchase airline tickets with GOL or other partner airlines, or products and services from Business and Financial Partners; Smiles Miles being acquired through the loyalty of these customers to those businesses, and (ii) Awards redemptions by Members when they exchange their Miles for flights on GOL and other partner airlines, or for products and services offered by Commercial and Financial Partners The main sources of our revenues come from (i) redeemed miles revenues, represented by tickets and awards in its network of airline, commercial and financial partners, (ii) interest income between the date the miles were accrued and the date they were redeemed, and (iii) Breakage revenues if issued miles expire without being redeemed. Glossary Awards - Products or services provided to members by a commercial partner as the result of redeeming customer miles loyalty program. Award Products - Product or service, excluding air tickets, provided to members by a commercial partner as the result of redeeming customer loyalty program points. Breakage Estimate Miles expired and not redeemed; it may be expressed as a number of miles, an amount in Brazilian reais or as a percentage of miles issued, depending on the context. Burn/Earn Ratio - The ratio between the number of redeemed and accrued miles in a given period. Free Float - Shares owned by non-controlling shareholders. Miles - The redemption rights of Smiles Program members sold to commercial partners. Smiles & Money - A means of issuing air tickets by combining money and miles. Smiles Program - A multi-loyalty program for several companies, including GOL Linhas Aéreas Inteligentes S.A. This release may contain forward-looking statements related to business prospects, estimates of operating and financial results, and growth prospects for Smiles. These are merely projections and, as such, are based exclusively on management's expectations for Smiles. Such forward-looking statements depend, substantially, on external factors and risks presented in the disclosure documents filed by Smiles, and are, therefore, subject to change without notice. Independent auditors did not review the Company s non-financial information. Some values from this report may differ from the financial statements due to rounding. 11